In this article, we discuss 10 best stagflation stocks to buy now. If you want to see more stocks in this selection, check out 5 Best Stagflation Stocks To Buy.
Stagflation Definition: What is Stagflation?
Stagflation refers to consistently high inflation paired with peak unemployment and slow demand. While economists initially believed that stagflation was a foreign concept, as unemployment and inflation rates usually move in different directions, they learned after the ‘Great Inflation’ in 1970s that stagflation is indeed real and it can batter an economy. The term stagflation was coined in 1965 when Iain Macleod, a British Conservative Party politician, said in a House of Commons speech:
"We now have the worst of both worlds — not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of 'stagflation' situation and history in modern terms is indeed being made."
Stagflation favors defensive companies whose products and services are necessary for people’s day-to-day lives. This means their share prices often stay resilient despite a slowing macro backdrop. In quantitative terms, defensive sectors usually have a market beta of under 1, which means they outperform when the benchmark index declines, whereas cyclical sectors have a market beta of more than 1, indicating underperformance when the index falls. Utilities, energy, consumer staples, healthcare, and real estate are some of the defensive sectors that perform well, whereas their cyclical counterparts like technology, industrials, and financials take a hit during stagflation economies.
Jonathan Wright, professor of economics at Johns Hopkins University, explained that stagflation may occur if a recession is triggered before inflation is limited to where the Federal Reserve wants it to be.
Stagflation remains the primary risk for the global economy in 2023, according to Wall Street experts who believe that any rally in equity markets is too unsustainable following the severe selloff in 2022. Nicole Kornitzer, a Paris-based portfolio manager at Kornitzer Capital Management Inc, told Bloomberg on November 28:
“Next year is still going to be difficult. Definitely, stagflation is the outlook for now.”
A majority of Wall Street experts believe that the stock market is heading towards stagflation in 2023, similar to the 1970s, as per Bank of America. In its most recent survey of fund managers, BofA found that 92% of them see a period of high inflation and low economic growth in 2023, while 0% foresee a bullish "goldilocks" scenario, where the economy evades a recession and inflation declines.
Photo by Mirza Babic on Unsplash
For this article, we selected stocks which are defensive in nature, offer strong market visibility, have resilient dividend profiles, and display a longstanding history of surviving volatile market environments. We have assessed the hedge fund sentiment from Insider Monkey’s database of 920 elite hedge funds tracked as of the end of the third quarter of 2022.
10 Best Stagflation Stocks To Buy
10. The Southern Company (NYSE:SO)
Number of Hedge Fund Holders: 31
The Southern Company (NYSE:SO) is a Georgia-based company that engages in the generation, transmission, and distribution of electricity. It operates through Gas Distribution Operations, Gas Pipeline Investments, Wholesale Gas Services, and Gas Marketing Services segments. On October 18, The Southern Company (NYSE:SO) declared a quarterly dividend of $0.68 per share, in line with previous. The dividend is distributable on December 6, to shareholders of record on November 21. The Southern Company (NYSE:SO)’s dividend yield on November 30 came in at 4.14%.
On October 24, Guggenheim analyst Shahriar Pourreza maintained a Buy recommendation on The Southern Company (NYSE:SO) but lowered the price target on the shares to $69 from $80. The analyst refreshed some estimates ahead of Q3 earnings season from the Power and Utilities group to factor in "known and measurable year-over-year items," to adjust for seasonality, and to re-mark to the latest commodity curves.
According to Insider Monkey’s data, 31 hedge funds were bullish on The Southern Company (NYSE:SO) at the end of Q3 2022, compared to 29 funds in the earlier quarter. Jim Simons’ Renaissance Technologies held the biggest stake in the company, comprising 3 million shares worth $208.2 million.
Like AbbVie Inc. (NYSE:ABBV), The Procter & Gamble Company (NYSE:PG), and Walmart Inc. (NYSE:WMT), The Southern Company (NYSE:SO) is one of the best stagflation stocks to invest in.
9. General Mills, Inc. (NYSE:GIS)
Number of Hedge Fund Holders: 40
General Mills, Inc. (NYSE:GIS) manufactures and markets branded consumer foods worldwide. The company operates through five segments – North America Retail, Convenience Stores & Foodservice, Europe & Australia, Asia & Latin America, and Pet. General Mills, Inc. (NYSE:GIS) is one of the best stagflation stocks to invest in. On November 14, the company declared a $0.54 per share quarterly dividend, in line with previous. The dividend is payable on February 1, 2023 to shareholders of the company as of January 10.
Exane BNP Paribas analyst Max Gumport on November 15 assumed coverage of General Mills, Inc. (NYSE:GIS) with an Outperform rating and a $90 price target. With a possible recession approaching, the analyst noted that the U.S. packaged food group has historically outperformed the S&P 500 during economic downturns, but he told investors it is "important to separate the wheat from the chaff". He thinks General Mills, Inc. (NYSE:GIS) is "reaching for a higher ground" and that its Blue Buffalo pet food brand has a significant runway.
According to Insider Monkey’s Q3 data, 40 hedge funds were long General Mills, Inc. (NYSE:GIS), compared to 35 funds in the earlier quarter. Ray Dalio’s Bridgewater Associates is a prominent stakeholder of the company, with 1.6 million shares worth $129 million.
Here is what Chartwell Investment Partners has to say about General Mills, Inc. (NYSE:GIS) in its Q2 2022 investor letter:
“In the Dividend Equity accounts, the three best performers in Q2 include General Mills (NYSE:GIS, 3.2%), up 12.2%. General Mills benefitted from the combination of being in a very defensive industry as well as demonstrating solid business momentum; margins have been particularly impressive, following price increases.”
8. Chubb Limited (NYSE:CB)
Number of Hedge Fund Holders: 41
Chubb Limited (NYSE:CB) is a Switzerland-based provider of insurance and reinsurance products worldwide. The company operates through North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance, and Life Insurance segments. On November 17, Chubb Limited (NYSE:CB) declared a quarterly dividend of $0.83 per share, in line with previous. The dividend is payable on January 6, 2023 to shareholders of record on December 16.
On November 15, Atlantic Equities analyst John Heagerty upgraded Chubb Limited (NYSE:CB) to Overweight from Neutral with a $240 price target. The analyst raised his fiscal 2023 earnings forecasts by a cumulative 12%, which he said makes Chubb Limited (NYSE:CB)’s current valuation "much more attractive." The property and casualty insurance sector is well positioned to benefit from the current profitability improvement and higher interest rates, which will continue to "feed through into stronger investment income and operating profitability" over the next few years, the analyst told investors.
According to the third quarter database of Insider Monkey, 41 hedge funds were bullish on Chubb Limited (NYSE:CB), compared to 35 funds in the prior quarter. Andreas Halvorsen’s Viking Global is the biggest position holder in the company, with 3.6 million shares worth $653.5 million.
Here is what Aristotle Capital Management Value Equity has to say about Chubb Limited (NYSE:CB) in its Q1 2022 investor letter:
“Our investment in Chubb began in the fourth quarter of 2015, shortly after ACE Limited announced it would acquire the Chubb Corporation, creating the largest global property and casualty insurance company by underwriting income. During our nearly seven-year holding period, the company’s combination progressed leading to the realization of main catalysts we had identified. These included cost savings, broadened product offerings and an expanded customer base, as well as enhanced distribution capabilities and improved pricing due to scale. In addition, Chubb successfully grew its profitable high-net-worth personal lines. While we still consider Chubb to be a high-quality business, few catalysts remain after what was, in our opinion, a remarkable run of successful business execution. As such, we decided to step aside in favor of what we believe to be a more optimal investment in Blackstone.”
7. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 42
eBay Inc. (NASDAQ:EBAY) is a California-based company that operates marketplace platforms connecting buyers and sellers in the United States and internationally. On November 29, eBay Inc. (NASDAQ:EBAY) declared a $0.22 per share quarterly dividend, in line with previous. The dividend is distributable on December 16, to shareholders of record on December 1. eBay Inc. (NASDAQ:EBAY) is one of the best stagflation stocks to invest in.
On November 15, MoffettNathanson analyst Michael Morton assumed coverage of eBay Inc. (NASDAQ:EBAY) with a Market Perform rating and a $44 price target. He does not believe in the bear scenario of peak e-commerce penetration and believes e-commerce penetration growth will continue at the historical levels, said the analyst, who prefers market share gainers and finds it "challenging to have an appetite for market share losers".
Among the hedge funds tracked by Insider Monkey, 42 funds reported owning stakes worth $1 billion in eBay Inc. (NASDAQ:EBAY) at the end of the third quarter of 2022, compared to 43 funds in the prior quarter worth $1.3 billion. D E Shaw held the leading position in the company, comprising nearly 6 million shares worth $218 million.
Here is how Smead Capital Management mentioned eBay Inc. (NASDAQ:EBAY) in the Q2 2022 investor letter:
“We believe you need to avoid these formerly glamorous stock groups for many years. We loved to use eBay Inc. (NASDAQ:EBAY) as a poster child back in 1999 for the dotcom bubble. We bought it eight years later and have done very well on it. We wouldn’t have done well if we bought it in the early years of that bear market, or even five years later. If you think this bear will be shorter and or less damaging than the dotcom bear market of 2000-2003, you could be showing your inexperience!.”
6. Crown Castle Inc. (NYSE:CCI)
Number of Hedge Fund Holders: 48
Crown Castle Inc. (NYSE:CCI) owns a portfolio of communications infrastructure that connects cities and communities to essential data, technology, and wireless services. Crown Castle Inc. (NYSE:CCI) owns, operates, and leases cell towers across the United States. On October 20, the company declared a $1.565 per share quarterly dividend, a 6.5% increase from its prior dividend of $1.470. The dividend is payable on December 30, to shareholders of record on December 15. Crown Castle Inc. (NYSE:CCI)’s dividend yield on December 1 came in at 4.94%.
On November 23, Raymond James analyst Ric Prentiss raised the price target on Crown Castle Inc. (NYSE:CCI) to $153 from $143 and reiterated an Outperform rating on the shares. The analyst still sees upside in Crown Castle Inc. (NYSE:CCI) and all U.S. tower stocks, especially if rates continue to stabilize.
According to Insider Monkey’s Q3 data, 48 hedge funds were bullish on Crown Castle Inc. (NYSE:CCI), with collective stakes exceeding $1 billion. Ken Fisher’s Fisher Asset Management held the biggest stake in the company, consisting of 3 million shares worth $434 million.
In addition to AbbVie Inc. (NYSE:ABBV), The Procter & Gamble Company (NYSE:PG), and Walmart Inc. (NYSE:WMT), Crown Castle Inc. (NYSE:CCI) is one of the premier stagflation stocks to monitor.
Here is what ClearBridge Investments Global Infrastructure Income Strategy has to say about Crown Castle International Corp. (NYSE:CCI) in its Q1 2022 investor letter:
“U.S. communications company Crown Castle International (NYSE:CCI) was the largest detractor from quarterly performance. Crown Castle is the leading independent owner and operator of wireless communications infrastructure in the U.S. with a portfolio of approximately 40,000 towers. The stock underperformed as, driven by rising interest rates, investors rotated away from defensive into more value-oriented sectors. Communications infrastructure remains attractive, however, as companies continue to deploy greater capital spend to support the strong tailwinds from 5G.”
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Disclosure: None. Stagflation Definition: 10 Best Stagflation Stocks To Buy is originally published on Insider Monkey.